How Does Robinhood Make Money


In March this year, Robinhood Markets, Inc. launched a cash card that allows its customers to earn up to 8% cash back on purchases. This included the option to earn bonuses ranging from 10% to 100%. The company has drawn a sizable user base over the years due to appealing offers like this.

Robinhood generates most of its revenue from accumulating minimal profits from individual trades. It accomplishes this by offering customers enticing features such as “free stocks” and commission-free trading.

How Trading on Robinhood Work

Robinhood routes its users’ orders through a market maker who makes the trades and compensates Robinhood for the business at a rate of a fraction of a cent per share. The HOOD Q4 2021 earnings report indicates that transaction-based revenue was Robinhood’s biggest source of income for that quarter.

Payments for Order Flow (Pfof)

Robinhood’s premium service, known as Robinhood Gold, offers subscribers access to research reports, market data, larger instant deposits, and margin trading. This generates a separate revenue from subscription fees paid by Robinhood’s premium user base. The monthly cost for this service is $5 per user.

Premium Robinhood Gold

Margin Trading is Robinhood’s second-biggest revenue generator. In 2021, margin lending accounted for 12% of Robinhood’s net revenue. Robinhood’s customers can use margin lending to finance stock purchases with borrowed funds. Users borrow money from Robinhood Securities to invest on margin. Robinhood Gold includes basic margin trading.

Margin Trading

Cash deposited into the various banks that make up Robinhood’s Cash Management network renders the company fees. It also benefits from using the Robinhood debit card by collecting interchange fees. Issuers of debit and credit cards frequently charge these sorts of fees to cover costs like transaction processing and fraud loss.

Cash Management Fee

In large part, Robinhood Securities may generate revenue by depositing customer cash into interest-bearing bank accounts if customers have money that is not invested and is not swept into their Cash Management network of banks. A higher interest rate is earned on the user’s cash deposit.

Income From Cash

Users who wish to move funds from the Robinhood platform into the services of another broker pay a transfer fee of $75. Robinhood has several additional costs, including $5 for paper statements, $5 for paper confirms, and $20 for overnight check deliveries.

Service Charge

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